A first look at the high dividend stock CenturyLink (CTL)

Dividend record: CTL paid a puny dividend until mid-2008 then it jumped 10 fold.  It paid no dividends in two quarters of 2009.  It has paid $0.725 per share quarterly for the last seven quarters (2010 to the present). 

Image006

Dividend: $0.73 quarterly

Dividend yield: 8.5% ($2.90 annual dividend at current rate/$33.90 share price)

Dividend payout ratio: 181% – 193% using the lower EPS guidance below.  The dividend will have to be cut or they will have to finance the dividend some other way (additional stock offering, saved cash, or more debt)

I noticed that there was a Reuters key development concerning earnings guidance for the rest of this year.  http://www.reuters.com/finance/stocks/CTL/key-developments/article/2376623

“CenturyLink, Inc. Raises FY 2011 Revenue Guidance; Lowers FY 2011 EPS Guidance
Wednesday, 3 Aug 2011 08:55am EDT 

CenturyLink, Inc. announced that for fiscal 2011, it expects pro forma operating revenues to be between $18.5 to $18.8 billion and pro forma diluted EPS is expected to be between $1.50 to $1.60. According to I/B/E/S Estimates, analysts on an average are expecting the Company to report revenues of $17.90 billion and EPS of $2.64 billion for fiscal 2011”

Earning power: $0.89 per share @ 616.44 million shares

(earnings adjusted for changes in capitalization.  CentruryLink has double the number of shares since 2010 which was three times higher than in the years 2006-2008)

            EPS       Net inc.             Adj EPS             Shares

2006     $3.07    $370 M              $0.60                122 M

2007     $3.72    $418 M              $0.68                113 M

2008     $3.56    $366 M              $0.59                103 M

2009     $3.23    $647 M              $1.05                199 M

2010     $3.13    $948 M              $1.54                301 M

TTM      $2.04    $770 M              $1.25                377 M

Five year average adjusted EPS = $0.89

Consider for a value buy below $7.14 (8 times average earnings)

Consider for an investment buy below $10.68 (12 times average earnings)

Consider selling above the speculative price of $17.80 (20 times average earnings)

CenturyLink is currently trading at $33.90.  It is speculatively priced because it is trading at 38 times it 5 year average earnings.

Balance sheet: Major growth in equity with each acquisition e.g. Qwest in 2011, but large debts to equity and not a lot of money available for short term debts maturing in the next year.

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Book value per share: $35.11

Price to book value ratio: 0.97 (good)

Current ratio: 0.99 as of 2Q2011 (over 2.0 is good)

Quick ratio: 0.50 as of 2Q2011 (over 1.0 is good)

Debt/equity: 1.53 as of 2Q2011

Conclusion: CenturyLink’s dividend is in jeopardy, it is speculatively priced, and its balance sheet is mediocre.  Wait for the dividend cut, watch as its price drops down to lower earnings multiples and the global bear market exerts downward pressure on the stock price, and see what the merged company does to strengthen its balance sheet.  I’m ignoring this stock until it drops below $17.80 per share.

Disclosure: I don’t own CenturyLink.

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Published in: on September 21, 2011 at 1:18 pm  Leave a Comment  

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